Government launches low interest housing mortgage program; major banks to offer 5% loans, subsidized by Ecuador’s central bank

The government has ordered Ecuador’s major banks to provide 5% mortgage interest rates, the lowest in the country’s history, to help finance low-cost housing. According Minister of Economic Policy Patricio Rivera, the banks will be reimbursed by the nation’s central bank.

New loans to be offered by major banks will cover purchase of low-cost housing.

The loans, which will range from $40,000 to $70,000, apply to the purchase of one single family residence and will require a 5% down payment with a 20-year term. Currently, most private bank mortgages carry interest rates ranging from 10% to 12%, require a 30% down payment, and are for a term of 15 years.

According to Rivera, the loans only apply to completed dwellings and cannot be used for remodeling or the purchase of land. The terms are not retroactive to other mortgages.

The banks that will offer the loans are Pichincha, Guayaquil, Loja, Pacifica, Internacional, Bolivarian Rumiñahui and Produbanco. Smaller banks can enter the program with an agreement with the government but are not required to. According to Rivera, banks have 90 days to initiate the program.

Cornelio Montalvo, financial business director for Banco Pichincha, said his bank supports the program. “As long as there is a compensation mechanism from the government, we are happy to participate,” he said. “The interest rate is unprecedented and it should attract a great deal of public interest.”

Ecuador’s private banks currently serve 24% of the national mortgage market. BIESS, the mortgage banking arm of the Social Security system, serves two-thirds of the market. BIESS is not part of the new program although it is considering lowering its rates from 8.5% to 6% on no-down payment loans.